TY - JOUR
T1 - The impact of delay
T2 - Evidence from formal out-of-court restructuring
AU - Srhoj, Stjepan
AU - Kovač, Dejan
AU - Shapiro, Jacob N.
AU - Filer, Randall K.
N1 - Funding Information:
The authors gratefully acknowledge the support of the National Science Foundation of the United States under grant SES-0752760 to the Research Foundation of the City University of New York , and of the Croatian Science Foundation (HrZZ) under the project IP-CORONA-2020-12-1064 . All opinions are those of the authors and should not be attributed to the NSF, CUNY or HrZZ. Authors are grateful for comments received by Steffen Müller, and comments by the participants of the ESOC Weekly Lab Meeting at Princeton University. Authors thank their 11 research assistants, Melko, Mihaela, Tena, Marino, Kristina, Tomo, Ante, Sandra, David, Antonija and Nika for their immense support with data collection. We are grateful to Barbara Forbes for editorial support. All errors are our own.
Funding Information:
The authors gratefully acknowledge the support of the National Science Foundation of the United States under grant SES-0752760 to the Research Foundation of the City University of New York, and of the Croatian Science Foundation (HrZZ) under the project IP-CORONA-2020-12-1064. All opinions are those of the authors and should not be attributed to the NSF, CUNY or HrZZ. Authors are grateful for comments received by Steffen Müller, and comments by the participants of the ESOC Weekly Lab Meeting at Princeton University. Authors thank their 11 research assistants, Melko, Mihaela, Tena, Marino, Kristina, Tomo, Ante, Sandra, David, Antonija and Nika for their immense support with data collection. We are grateful to Barbara Forbes for editorial support. All errors are our own.
Publisher Copyright:
© 2022 Elsevier B.V.
PY - 2023/2
Y1 - 2023/2
N2 - Different types of bankruptcy restructuring procedures are used in most legal systems to decide the fate of businesses facing financial hardship. We study how bargaining failures in an under-researched type of restructuring procedure, a formal out-of-the court procedure impacts the economic performance of participating firms. Croatia introduced a “pre-bankruptcy settlement” (PBS) process in the wake of the Great Recession of 2007–2009. A novel dataset provides us with annual financial statements for both sides of more than 180,000 debtor–creditor pairs, enabling us to address selection into failed negotiations by matching a rich set of creditor and debtor characteristics. Failures to settle at the PBS stage due to idiosyncratic bargaining problems, which effectively delay entry into the standard bankruptcy procedure, lead to a lower rate of survival among debtors as well as reduced employment, revenue, and profits. We are the first study to track how bargaining failures diffuse through the network of creditors, finding a significant negative effect on small creditors, but not others. Our results highlight the impact of delay and the importance of structuring bankruptcy procedures, to rapidly resolve uncertainty about firms’ future prospects.
AB - Different types of bankruptcy restructuring procedures are used in most legal systems to decide the fate of businesses facing financial hardship. We study how bargaining failures in an under-researched type of restructuring procedure, a formal out-of-the court procedure impacts the economic performance of participating firms. Croatia introduced a “pre-bankruptcy settlement” (PBS) process in the wake of the Great Recession of 2007–2009. A novel dataset provides us with annual financial statements for both sides of more than 180,000 debtor–creditor pairs, enabling us to address selection into failed negotiations by matching a rich set of creditor and debtor characteristics. Failures to settle at the PBS stage due to idiosyncratic bargaining problems, which effectively delay entry into the standard bankruptcy procedure, lead to a lower rate of survival among debtors as well as reduced employment, revenue, and profits. We are the first study to track how bargaining failures diffuse through the network of creditors, finding a significant negative effect on small creditors, but not others. Our results highlight the impact of delay and the importance of structuring bankruptcy procedures, to rapidly resolve uncertainty about firms’ future prospects.
KW - Bankruptcy
KW - Insolvency
KW - Liquidation
KW - Restructuring
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U2 - 10.1016/j.jcorpfin.2022.102319
DO - 10.1016/j.jcorpfin.2022.102319
M3 - Article
AN - SCOPUS:85142879264
SN - 0929-1199
VL - 78
JO - Journal of Corporate Finance
JF - Journal of Corporate Finance
M1 - 102319
ER -